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INTERNATIONAL INVESTMENT AGREEMENTS AND INVESTOR-STATE ARBITRATION LECTURE 1. IIAs: types, features and trends. Sergey Ripinsky. International Investment Agreements Section. Division on Investment and Enterprise. Geneva, 4 May 2012. Plan for the course.
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INTERNATIONAL INVESTMENT AGREEMENTS AND INVESTOR-STATE ARBITRATIONLECTURE 1. IIAs: types, features and trends Sergey Ripinsky International Investment Agreements Section Division on Investment and Enterprise Geneva, 4 May 2012
Plan for the course • IIAs – notion, types, features and trends • Investor-State dispute settlement (ISDS) • IIAs and sustainable developments
Background: recent FDI statistics • 2011: global FDI inflows rose by 17% to US$1.5 trillion. • Developing and transition economies accounted for half of global FDI in 2011 (US$755 billion).
Investors and governments: examples of problems • 40-year oil concession with a stabilization clause. After 10 years, new government proposes to renegotiate the contract. Investor refuses. Government terminates the concession. • Pesticide-producing business. New scientific evidence – government bans production and marketing of that pesticide. • Tax authority imposes multiple fines and sanctions for tax avoidance. Investor says that this is a revenge for its refusal to pay bribes to tax officials. • New requirement that all enterprises employ 90% of locals and that they source 90% of their inputs locally. Foreign investors complain that this makes their products less competitive.
IIA – an international treaty that promotes and protects investments from one Contracting Party in the territory of another • Preamble • Definitions of terms (esp. investment / investor) • Admission and establishment of investments • Core standards of protection: • Non-discrimination (National Treatment / MFN) • Fair and equitable treatment • Full protection and security • Expropriation • Compensation for losses due to armed conflict / civil riots • Free transfer of funds • “Umbrella clause” (obligation to observe specific undertakings) • Dispute settlement (investor-State arbitration)
Why do countries conclude IIAs? • Home countries – to protect their investors abroad. • Host countries – to attract FDI. • Complicating factor: Many countries are now both importers and exporters of capital.
Main FDI determinants • Market size • Availability of natural resources • Quality of infrastructure • Qualification and productivity of the workforce • Flexibility of labour legislation and exchange laws • Transparency and stability of the legal and political systems, security of property and contract rights • Tax incentives
Sources of investment risk (political risk) • nationalization / expropriation • contract repudiation • crime, terrorism and kidnapping • civil unrest • constraints on repatriation of dividends/profits • ineffective legal and regulatory systems • red tape, bureaucracy and weak institutions • corruption/bribery
Types of IIAs • BITs, and • “other IIAs”, which include: • Free trade agreements / economic partnership agreements with investment provisions (FTAs/EPAs) • Regional integration agreements (EU, CARICOM, MERCOSUR, COMESA, Arab investment agreement, ASEAN) • Multilateral agreements focusing on a specific sector (Energy Charter Treaty) • Multilateral agreements touching upon investment issues (GATS, TRIMs)
Top ten signatories of BITs Number of BITs
IIA content trends Pre- and post-establishment IIAs Different formulations of the same “core” disciplines - different interpretation by arbitral tribunals. Treaty text is paramount – need to understand its implications and possible future interpretation. Increased sophistication and level of detail – learning lessons from ISDS proceedings. New types of disciplines included (performance requirements, transparency, etc.). 15